1. (C) SUMMARY: Recent discussions with former governmentofficials, long-term opposition leaders and journalists painta picture of an Algerian regime that is fragile in ways ithas not been before, plagued by a lack of vision,unprecedented levels of corruption and rumblings of divisionwithin the military rank and file. Our Algerian contacts areoften a grumpy lot, but we now hear more than the ordinaryamount of concern about the GOA's inability or unwillingnessto address political, economic and security problems. TheDecember 11 suicide bombings in Algiers, carried out by twomen amnestied under the Charter for Peace and NationalReconciliation, have ignited heated debate about the abilityof President Bouteflika's reconciliation program to protectthe country. The debate pits proponents of an urgent andaggressive approach to the terrorist threat against thosealigned with Bouteflika who still believe that amnesty has arole to play. The picture of an isolated president, astagnant reform process and an uncertain approach towardsterror comes at a time when efforts within the government toengineer a third term for Bouteflika are gathering steam. Wedo not sense an explosion coming right away. Instead, we seea government drifting and groping for a way forward. ENDSUMMARY.

SHIP OF STATE ADRIFT--------------------

2. (C) On December 3, opposition Rally for Culture andDemocracy (RCD) leader Said Sadi presented a somber overviewof the Algerian regime, saying it insisted on continuedcontrol but lacked vision and capacity. Sadi warned that inthe context of current stagnation in economic and politicalreform, Algeria's institutions were corroding from within,losing many of their best cadres of workers and civilservants. The former leader of the Islamist al-Islah party,Abdallah Djaballah, who was ousted from the party'sleadership with active help from the Interior Ministry,pointed out to us on December 17 that the harraga phenomenon(ref A), in which youth flee on makeshift crafts to Europe,was no longer limited only to poor, unemployed youth.Djaballah viewed Algerian youth as having a choice "betweendeath at sea and a slow, gradual death at home" given theprofound lack of opportunities in the country's stagnanteconomy. Sadi told us he was shocked to find so manyeducated, middle-class Algerians in Quebec and parts of theU.S. on a recent visit. "Those people are the future ofAlgeria," Sadi said.

3. (C) XXXXXXXXXXXX, told usDecember 17 that when it came to national reconciliation, theDecember 11 bombings had polarized the debate within theAlgerian security services, with an increasing number ofvoices favoring a tougher approach. XXXXXXXXXXXX said that theregime had no single, clear approach to fighting terror, afact proven by its indecisiveness on how to handlehigh-profile amnesty cases such as that of Hassan Hattab (refB). According to Sadi and XXXXXXXXXXXX ordinary Algerians, whohave already lost confidence in the economic and politicalreform agenda, are now losing faith in the ability of theregime to protect them. Laila Aslaoui, a former minister,women's rights activist and writer, told Ambassador at dinnerDecember 18 that much of Algerian society was demobilizingagainst the terror threat. It was scandalous that theInterior Ministry knew the Supreme Court was a target and didnothing to improve the building's security or warn thepublic, she claimed. She was caustic about the InteriorMinister's comment that it was impossible to provide completeprotection against bomb attacks, wondering why the GOA doesnot more vigorously pursue terrorist suspects. The GOA hadasked Ms. Aslaoui on December 17 to help organize a marchcondemning terrorism. In the 1990s, she said she would nothave hesitated. Now, she remarked bitterly, she would donothing that helps the Algerian government justify itsapproach to security. XXXXXXXXXXXX

XXXXXXXXXXXX

XXXXXXXXXXXX, told Ambassador December 17that there is a growing gap between what ordinary Algerianssee as their key needs and what they perceive the governmentis offering in terms of wages and quality of life. As aresult, he said, fewer Algerians are willing to help thegovernment. The word on the street, he said, is that if youhave to do business in a government office, go but then leavepromptly and stay out of the way.

4. (C) On the other hand, Djaballah told us that widespreaddisenchantment about the government's willingness to sharepower with Islamists ultimately prompted Algerian Islamiststo heed calls by his and other Islamist parties to boycottthe November 29 local elections. They understand, he said,that the new electoral law (ref C) was designed tomarginalize them and perpetuate the ruling coalition's gripon power. Closing out political space will merely spur moreextremism, he warned. The Ambassador told Djaballah that theU.S. favors political liberalization in Algeria but we alsounderstand that this may have to be done gradually. The U.S.does not want to see a return to the violence of the 1990sand is working with the GOA against those who actively seekit. He welcomed Djaballah's effort to play in the legalpolitical system. The important point, the Ambassadorunderlined, is that while political evolution might be slowit needs to be in a steady direction of liberalization.Djaballah accepted the point and appreciated our havingraised election process problems with the GOA.

A RULING "GANG FROM TIKRIT"---------------------------

5. (C) Commenting on the stability of the country, XXXXXXXXXXXXstressed that Algerians "have been through far worse thanthis," and that internal divisions should not be mistaken forinstability. The regime, XXXXXXXXXXXX pointed out, valuesstability above all else, and is consequently both fragileand stable at the same time. XXXXXXXXXXXX agreed with an analogymade by Sadi both to us and publicly in the press, comparingthe Bouteflika government to "a gang from Tikrit" in which adisproportionate number of cabinet ministers and generalscame from the same region in the western province of Tlemcenas President Bouteflika. (Indeed, many in the inner circlecome from the small town of Nedrumah.) The loyalty of this"gang," according to XXXXXXXXXXXX and Sadi, is key to maintainingstability, just as it did in Saddamn Hussein's Iraq.

SADI: "STAND UP FOR OUR YOUTH"------------------------------

6. (C) Sadi warned of the long-term dangers of the U.S.remaining silent on what he perceived as the deterioration ofAlgerian democracy, as evidenced by the local elections. InSadi's view, outside support is critical to the survival ofdemocracy and the productive engagement of Algerian youth --70 percent of the population -- in political and economiclife. If the U.S. is seen to be complicit in meaninglesselections and the process of amending the constitution toallow Bouteflika to run for a third term, he warned, it riskslosing the youth demographic for the future.

7. (C) The Ambassador reminded Sadi of our fruitless effortsto maintain a National Democratic Institute program inAlgeria that the Interior Ministry consciously shut down; fewpolitical parties had pushed hard to save it. Ambassadortold Sadi we had raised on multiple occasions problems withthe election process and its credibility. He noted to Sadithat we had heard other parties ask for more public U.S.support, and urged the RCD and other Algerian parties to maketheir voices heard. The U.S. would be credible in raisingobstacles to liberalization only if the Algerian politicalparties themselves spoke out loudly. Given the absence of aninternational election monitoring commissions in the 2008legislative and local elections, the Ambassador advised Sadito consider sooner rather than later generating publicrequests for international observers for the 2009presidential elections.

STABILITY IN THE HANDS OF A DIVIDED MILITARY...--------------------------------------------- --

8. (S) Sadi, who maintains contacts with elements of the

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Algerian military and security services, told us that thearmy was no longer as unified as it had been even a few yearsago. Two splits were emerging, he said. The first is amongyounger officers who know Algeria is not well and blame theold guard for neglect and mismanagement. These officers,Sadi said, want change and feel an increasing sense ofurgency that the country is adrift. The second splitidentified by Sadi lies within the senior ranks of themilitary, between officers who favor a tougher approach tosecurity and counter-terrorism (the "eradicateurs") and thosestill aligned with Bouteflika's national reconciliationpolicy. XXXXXXXXXXXX, whose brotheris an army officer, said on December 17 that there arecolonels in the Algerian military who think the current driftcannot continue. The question, XXXXXXXXXXXX whispered, is whetherthey can organize themselves.

9. (S) Sadi told us of at least one conversation he has hadrecently with General Toufik Mediene, the head of Algeria'sDRS (military intelligence apparatus) who is widely viewed asthe key figure in ensuring regime control and survival. Hesaid Mediene acknowledged that all was not well with thehealth of Bouteflika and Algeria writ large. However,according to Sadi, Mediene said that he needed some kind ofreassurance that any political alternative "would be viable"and, by implication, would not destabilize the country. Sadisaid that many senior officers were beginning to wonder ifthey could get the army out of politics altogether, withoutfear of public retribution for past abuses during the civilwar.

10. (S) Sadi, Djaballah, XXXXXXXXXXXX and numerous othercontacts have told us that corruption has reachedunprecedented levels in the current regime. As we reportedin ref D, the ruling FLN party, intent on laying thegroundwork for a Bouteflika third term, has sought to installlocal officials through electoral wrangling based on loyaltyeven at the expense of competence. With oil prices at recordhighs, former Finance and Prime Minister Benbitour toldAmbassador in November, there was less incentive for theregime to carry out much-needed reforms. High oil prices arebringing incredible wealth into the country, Benbitour toldus, but ordinary people are not seeing any impact on theirdaily lives. (Indeed, Benbitour publicly coined a term wesee often in the media now: Algeria is rich, but the peopleare poor. Islamist leader Djaballah used it with us often onDecember 17.) Corruption, XXXXXXXXXXXX, has reached epicproportions, even within the military. He cited LieutenantGeneral Ahmad Gaid Salah, commander of Algerian militaryforces, as perhaps the most corrupt official in the militaryapparatus, something other contacts have told us as well.When Sadi mentioned the corruption problem to GeneralMediene, Sadi said, Mediene acknowledged the problem.Motioning silently to the portrait of Bouteflika that hungover their heads, he indicated to Sadi that the extent of theproblem went all the way to the top. (Comment: many embassycontacts think President Bouteflika himself is notparticularly corrupt, but they readily finger the President'sbrothers, Said and Abdallah, as being particularly rapacious. The Algerian military, meanwhile, has launched ananti-corruption program that is ambitious by Algerianstandards but has left the senior leadership relativelyuntouched. End Comment.)

11. (S) Our Algerian contacts are often a grumpy lot, but wenow hear more than the ordinary amount of concern about theGOA's inability or unwillingness to address political,economic and security problems. The bombings and the debateabout how to handle Islamist extremism also are starting toremind of the ferocious arguments within Algerian societyduring the worst of 1990s violence. These contacts agreethat while the 1990s showed most Algerians can withstand lotsof pain, the December 11 bombings laid bare the regime's lackof vision and inability to manage the pressures. We arestarting to hear echoes of a debate within some circles ofthe military establishment of an increasingly polarized

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debate over national reconciliation has become a discussionabout the viability of Bouteflika's government itself.According to our contacts, stability remains the top priorityeven among officials on opposite sides of the debate,although they see stability as flowing not from Bouteflika'sleadership but from a military apparatus that appears torealize that the buck stops with them. The new element isthe push from Prime Minister Belkhadem and the FLN apparatus,probably with impetus from Bouteflika's brothers if notPresident Bouteflika himself, to arrange a constitutionalamendment and a third term. Sadi, a medical doctor, saidthat both Bouteflika and Algeria itself were in criticalcondition and fading. According to Sadi (who may or may notknow), Bouteflika suffers from terminal stomach cancer, andthe regime lies on the operating table, slipping towards apoint of no return as "untrained surgeons" stand by.Meanwhile, the government's seeming inability to jump-startthe stagnant economy has Algerians, especially youth, feelinggloomy and grim about the fate of their country as it driftsinto the new year.FORD